Efficiency First: A Crucial Building Block for the Energiewende

When the German Ministry of Energy and Economic Affairs published its green paper on energy efficiency, it not only put the spotlight on efficiency, it also started the conversation around a necessary underlying energy policy framework. Until now, energy efficiency has been viewed merely as an additional service offered to end-use customers, but rarely as one of the fundamental building blocks for a successful “Energiewende,” or energy transition, in Germany.

Although it may seem counterintuitive, today’s energy markets do not automatically consider the economic value of demand-side resources, such as energy efficiency or load shifting, not even in competitive markets. Every saved or avoided kilowatt hour has a long-term system value of 11 to 15 euro cents, based on avoided generation, transport, and distribution costs. Most efficiency investments cost even less. Yet Germany, like many other countries, opts primarily for supply-side options. This disconnect is driven by the notion that liberalized energy markets are the perfect, and therefore the only, way to achieve an economically efficient energy sector.

However, the key to an economically efficient energy sector is the regulator. Only policymakers can systematically eliminate the existing misconceptions and investment shortfalls, or the different methods for valuating energy resources. It is, however, considerably more difficult in competitive markets (in contrast to monopolistic structures) to establish the necessary long-term planning approaches, such as integrated resource planning and least-cost planning.

RAP developed the principle of “Efficiency First” as a decision-making principle and economic instrument for bridging these gaps. Efficiency First prioritizes any efficiency measure that costs less or delivers more value than planned investment in supply resources—particularly fossil fuels—and infrastructure. In order to implement this systematic evaluation of investment options, policymakers need an overarching regulatory framework that not only recognizes the value of demand-side resources, but also empowers the competent institutions to work together to craft and recommend comprehensive solutions, in addition to reviewing existing measures. In order to base discussions of Efficiency First on real-world experience, RAP has collected examples of similar existing measures from across Europe to inform practical discussions with decision-makers and market partners.

There’s a lot of work ahead of us if we’re going to do more than just pay lip service to the green paper on efficiency. The questions posed in the Ministry’s public consultation are headed in the right direction. Being able to answer these questions without any hidden agenda, ulterior motives, or bias for specific business models will allow the Ministry to craft a white paper with concrete recommendations for Efficiency First that can be implemented by the next federal government. The Ministry has already taken an important first step. Now it’s up to citizens and organizations, their associations, and their representatives to step up to ensure that this topic becomes part of the next election platform and, thus, part of the next coalition agreement.

The existing, relatively small, differences of opinions among stakeholders must be put aside. The alternative is an expensive Energiewende, or possibly even an Energiewende facing failure. Along these same lines, capturing the full value of various energy resources will also be crucial in decarbonizing the heating and transportation sectors through beneficial electrification. This valuation is the deciding factor in whether the German Energiewende can be a valuable model for other countries. RAP will continue to work toward this goal.

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